Question 1

The official record of the meetings of the board of directors and shareholders is contained in the corporate

Accepted Answer

A)  bylaws. 
B)  charter. 
C)  minutes. 
D)  license. 
A)  bylaws. 
B)  charter. 
C)  minutes. 
D)  license.

Question 2

Michum Inc. has related parties with a company owned by the CEO's brother that comprise about $500 000. There are also related party transactions with the owner (about $250) and with two of the officers ($750 and $1000) respectively. Which related parties should be identified and included in audit documentation?

Accepted Answer

A)  those with material transactions only 
B)  those that had transactions in the current year only 
C)  all related parties 
D)  only those that could lead to a conflict of interest 
A)  those with material transactions only 
B)  those that had transactions in the current year only 
C)  all related parties 
D)  only those that could lead to a conflict of interest

Question 3

Fraud risk factors are examples of factors that increase the risk of fraud. Which of the following is an example of a management "opportunities" risk factor?

Accepted Answer

A)  The company has lost a major account and income is falling. 
B)  Two major competitors have gone bankrupt as margins decline in the industry. 
C)  The Chief Executive Officer owns forty percent of the outstanding share capital. 
D)  New accounting standards provide three different methods for valuing financial instruments. 
A)  The company has lost a major account and income is falling. 
B)  Two major competitors have gone bankrupt as margins decline in the industry. 
C)  The Chief Executive Officer owns forty percent of the outstanding share capital. 
D)  New accounting standards provide three different methods for valuing financial instruments.

Question 4

The existence of advanced automated systems affects the audit process. Which of the following characteristics is an indicator of the presence of an advanced automated information system?

Accepted Answer

A)  use of data communications (such as the Internet) to transfer transaction data 
B)  use of packaged software to process sales both locally and across Canada 
C)  use of customer relationship management systems to manage sales information 
D)  numerically-controlled equipment used in the manufacturing process 
A)  use of data communications (such as the Internet) to transfer transaction data 
B)  use of packaged software to process sales both locally and across Canada 
C)  use of customer relationship management systems to manage sales information 
D)  numerically-controlled equipment used in the manufacturing process

Question 5

Risks associated with specific industries may affect the auditor's assessment of client business risk and acceptable audit risk, and even influence client acceptance decisions. Which of the following businesses would be the most risky for the auditor to accept as a new client?

Accepted Answer

A)  a small manufacturer of metal and plastic parts that has steady profits and has been in business for 15 years 
B)  a client who is developing a computer game that is expected to be ready in three years and has no other products 
C)  a retail company in the clothing industry that has mid-range pricing and appeals to a large population sector 
D)  a firm consisting of a partnership of ten lawyers that operates out of three different cities in one province 
A)  a small manufacturer of metal and plastic parts that has steady profits and has been in business for 15 years 
B)  a client who is developing a computer game that is expected to be ready in three years and has no other products 
C)  a retail company in the clothing industry that has mid-range pricing and appeals to a large population sector 
D)  a firm consisting of a partnership of ten lawyers that operates out of three different cities in one province

Question 6

Which of the following would you expect to find in a corporation's bylaws?

Accepted Answer

A)  The kinds and amounts of capital stock authorized. 
B)  The date of incorporation. 
C)  The rules and procedures adopted by the shareholders of the corporation. 
D)  The types of business activities that the corporation is authorized to conduct. 
A)  The kinds and amounts of capital stock authorized. 
B)  The date of incorporation. 
C)  The rules and procedures adopted by the shareholders of the corporation. 
D)  The types of business activities that the corporation is authorized to conduct.

Question 7

White Top Telephones is the largest telephone distributor in the province, distributing wired and cordless phones as well as cell phones. Management always seems to be in a rush and is difficult to approach. Unfortunately, this attitude has permeated down to all of the staff. Everyone seems to be hurrying about, doing what needs to be done. Sometimes it seems as if they don't even have time for their customers. Yet, everything seems to get done. The company's website has a lengthy privacy policy statement indicating that customers are number one and that all data is kept secure.
Required:
Explain the importance of the control environment and corporate governance structure. During what phases of the risk assessment and planning process would the control environment and corporate governance structure be documented and assessed?

Accepted Answer

In a well-run business with a corporate

Question 8

When reading the corporate minutes, the auditor obtained information regarding loans that were authorized for borrowing. What audit step would the auditor likely conduct with this information?

Accepted Answer

A)  trace the authorized amounts to the bank statements 
B)  verify that notes payable have been recorded 
C)  calculate interest payable as of the end of the year 
D)  contact a credit rating agency to determine the rating of the lender 
A)  trace the authorized amounts to the bank statements 
B)  verify that notes payable have been recorded 
C)  calculate interest payable as of the end of the year 
D)  contact a credit rating agency to determine the rating of the lender

Question 9

How is lack of understanding of a client's knowledge and industry linked to the auditor's business risk?

Accepted Answer

A)  sales and collection processes need to be carefully documented so that the auditor can assess the value of accounts receivable 
B)  failure to fully understand the nature of the client's transactions could result in litigation should the client fail 
C)  the auditor may not be adequately trained to understand the nature of the client's business and thus may conduct a poor quality audit 
D)  there may not be sufficient expertise assigned to the audit engagement, resulting in a lack of understanding of complex issues 
A)  sales and collection processes need to be carefully documented so that the auditor can assess the value of accounts receivable 
B)  failure to fully understand the nature of the client's transactions could result in litigation should the client fail 
C)  the auditor may not be adequately trained to understand the nature of the client's business and thus may conduct a poor quality audit 
D)  there may not be sufficient expertise assigned to the audit engagement, resulting in a lack of understanding of complex issues

Question 10

The audit plan includes the nature, timing and extent of audit procedures for the purposes of risk assessment, including those that are linked to the individual audit assertions, as well as any other audit procedures that are considered necessary. At what point in the audit process is the audit plan finalized?

Accepted Answer

A)  When the auditor has finished documenting internal controls. 
B)  When the client risk profile has been completed. 
C)  When risk assessments are complete. 
D)  When inherent risk information has been gathered. 
A)  When the auditor has finished documenting internal controls. 
B)  When the client risk profile has been completed. 
C)  When risk assessments are complete. 
D)  When inherent risk information has been gathered.

Question 11

Three conditions for fraud are referred to as the "fraud triangle." One of the sides of this triangle is incentives or pressures. The other two sides are

Accepted Answer

A)  opportunities and a desire to meet debt repayment obligations. 
B)  opportunities and attitudes or rationalizations. 
C)  attitudes or rationalizations and the need to maintain stock prices. 
D)  the need to maintain stock prices and the need to meet debt repayment obligations. 
A)  opportunities and a desire to meet debt repayment obligations. 
B)  opportunities and attitudes or rationalizations. 
C)  attitudes or rationalizations and the need to maintain stock prices. 
D)  the need to maintain stock prices and the need to meet debt repayment obligations.

Question 12

During the audit engagement, the primary auditor may rely on other individuals, such as specialists, other auditors, and internal auditors (secondary auditors). The primary way to defend the auditor against negligence should such other individuals conduct poor quality work is whether the

Accepted Answer

A)  other individuals were professionals with recognized credentials. 
B)  primary auditor conducted sufficient quality control work with respect to the secondary auditor(s). 
C)  secondary auditor had ever been sued before. 
D)  appropriate level of materiality had been used during the conduct of the engagement. 
A)  other individuals were professionals with recognized credentials. 
B)  primary auditor conducted sufficient quality control work with respect to the secondary auditor(s). 
C)  secondary auditor had ever been sued before. 
D)  appropriate level of materiality had been used during the conduct of the engagement.

Question 13

Knowledge of the client's industry and external environment can be obtained in different ways. Discuss some of the ways that this knowledge can be obtained.

Accepted Answer

- discuss with the auditor who was in ch

Question 14

Which of the following is a factor that relates to "incentives or pressures" to commit fraudulent financial reporting?

Accepted Answer

A)  significant accounting estimates involving subjective judgments 
B)  excessive pressure for management to meet debt covenant requirements 
C)  management's practice of making overly achievable forecasts 
D)  high turnover of accounting, internal audit, and information technology staff 
A)  significant accounting estimates involving subjective judgments 
B)  excessive pressure for management to meet debt covenant requirements 
C)  management's practice of making overly achievable forecasts 
D)  high turnover of accounting, internal audit, and information technology staff

Question 15

Black Rock Limited is a marble and tile outlet that has a large outdoor area as well as an indoor showroom for a variety of stone, tile, and marble. It is July and your firm has just been appointed as the auditor for the September year-end audit. The previous auditing firm had conducted review engagements. The company's bank has asked for audited financial statements for the current year end.
Required:
A) What is the purpose of obtaining knowledge of the client's industry and business environment? Identify at least three procedures that you could undertake in this area.
B) What is the purpose of obtaining knowledge of the client's business? Identify at least three procedures that you could undertake in this area.

Accepted Answer

A)The three main reasons for obtaining a

Question 16

The existence of advanced automated systems affects the audit process. Which of the following characteristics is an indicator of the presence of an advanced automated information system?

Accepted Answer

A)  custom-designed operational or strategic information systems 
B)  use of packaged software to process sales both locally and across Canada 
C)  use of customer relationship management systems to manage sales information 
D)  numerically controlled equipment used in the manufacturing process 
A)  custom-designed operational or strategic information systems 
B)  use of packaged software to process sales both locally and across Canada 
C)  use of customer relationship management systems to manage sales information 
D)  numerically controlled equipment used in the manufacturing process

Question 17

The existence of advanced automated systems affects the audit process. Which of the following characteristics is an indicator of the presence of an advanced automated information system?

Accepted Answer

A)  electronic data interchange systems for purchase orders, sales invoices, and payments 
B)  use of packaged software to process sales both locally and across Canada 
C)  use of customer relationship management systems to manage sales information 
D)  numerically controlled equipment used in the manufacturing process 
A)  electronic data interchange systems for purchase orders, sales invoices, and payments 
B)  use of packaged software to process sales both locally and across Canada 
C)  use of customer relationship management systems to manage sales information 
D)  numerically controlled equipment used in the manufacturing process

Question 18

In order to assess if a company is a going concern, the auditor can calculate which of the following ratios during the audit planning and compare with previous years and successful companies in the industry?

Accepted Answer

A)  debt to equity ratio 
B)  accounts receivable turnover ratio 
C)  percent of interest expense to sales 
D)  inventory turnover ratio 
A)  debt to equity ratio 
B)  accounts receivable turnover ratio 
C)  percent of interest expense to sales 
D)  inventory turnover ratio

Question 19

The auditor will obtain a copy of the client's articles of incorporation (if applicable) and retain a copy in the permanent file. Important information in the articles of incorporation includes

Accepted Answer

A)  the interest rates currently being paid for bonds that have been issued. 
B)  voting rights of each class of shares issued by the company. 
C)  which shares have been redeemed by the company in the current year. 
D)  the interest rates that are being received on long-term notes invested. 
A)  the interest rates currently being paid for bonds that have been issued. 
B)  voting rights of each class of shares issued by the company. 
C)  which shares have been redeemed by the company in the current year. 
D)  the interest rates that are being received on long-term notes invested.

Question 20

An important reason for auditors to obtain good knowledge of a client's industry is that

Accepted Answer

A)  payroll processing functions could differ from client to client. 
B)  control risks will vary from zero to 100% and can be better assessed in context. 
C)  detection risk must be set in accordance with the needs of the industry as well as of the individual client. 
D)  organizations like city governments have unique accounting requirements that could be complex. 
A)  payroll processing functions could differ from client to client. 
B)  control risks will vary from zero to 100% and can be better assessed in context. 
C)  detection risk must be set in accordance with the needs of the industry as well as of the individual client. 
D)  organizations like city governments have unique accounting requirements that could be complex.

The official record of the meetings of the board of directors and shareholders is contained in the corporate

Fraud risk factors are examples of factors that increase the risk of fraud. Which of the following is an example of a management "opportunities" risk factor?

The existence of advanced automated systems affects the audit process. Which of the following characteristics is an indicator of the presence of an advanced automated information system?

Risks associated with specific industries may affect the auditor's assessment of client business risk and acceptable audit risk, and even influence client acceptance decisions. Which of the following businesses would be the most risky for the auditor to accept as a new client?

Which of the following would you expect to find in a corporation's bylaws?

When reading the corporate minutes, the auditor obtained information regarding loans that were authorized for borrowing. What audit step would the auditor likely conduct with this information?

How is lack of understanding of a client's knowledge and industry linked to the auditor's business risk?

Three conditions for fraud are referred to as the "fraud triangle." One of the sides of this triangle is incentives or pressures. The other two sides are

During the audit engagement, the primary auditor may rely on other individuals, such as specialists, other auditors, and internal auditors (secondary auditors). The primary way to defend the auditor against negligence should such other individuals conduct poor quality work is whether the

Knowledge of the client's industry and external environment can be obtained in different ways. Discuss some of the ways that this knowledge can be obtained.

Which of the following is a factor that relates to "incentives or pressures" to commit fraudulent financial reporting?

The existence of advanced automated systems affects the audit process. Which of the following characteristics is an indicator of the presence of an advanced automated information system?

The existence of advanced automated systems affects the audit process. Which of the following characteristics is an indicator of the presence of an advanced automated information system?

In order to assess if a company is a going concern, the auditor can calculate which of the following ratios during the audit planning and compare with previous years and successful companies in the industry?

The auditor will obtain a copy of the client's articles of incorporation (if applicable) and retain a copy in the permanent file. Important information in the articles of incorporation includes

An important reason for auditors to obtain good knowledge of a client's industry is that

The Demand for Audit and Other Assurance Services

The Public Accounting Profession and Audit Quality

Legal Liability

Professional Judgment and Ethics

Audit Responsibilities and Objectives

Materiality and Risk

Internal Controls and Control Risk

Audit Evidence

Audit Strategy and Audit Program

Audit Sampling Concepts

Audit of the Revenue Cycle

Audit of the Acquisition and Payment Cycle

Audit of the Inventory and Distribution Cycle

Audit of the Human Resources and Payroll Cycle

Audit of the Capital Acquisition and Repayment Cycle

Audit of Cash Balances

Completing the Audit

Audit Reports on Financial Statements

Other Assurance and Nonassurance Services

Filters

Exam 6: Client Acceptance and Planning the Audit

The official record of the meetings of the board of directors and shareholders is contained in the corporate

Fraud risk factors are examples of factors that increase the risk of fraud. Which of the following is an example of a management "opportunities" risk factor?

The existence of advanced automated systems affects the audit process. Which of the following characteristics is an indicator of the presence of an advanced automated information system?

Risks associated with specific industries may affect the auditor's assessment of client business risk and acceptable audit risk, and even influence client acceptance decisions. Which of the following businesses would be the most risky for the auditor to accept as a new client?

Which of the following would you expect to find in a corporation's bylaws?

When reading the corporate minutes, the auditor obtained information regarding loans that were authorized for borrowing. What audit step would the auditor likely conduct with this information?

How is lack of understanding of a client's knowledge and industry linked to the auditor's business risk?

Three conditions for fraud are referred to as the "fraud triangle." One of the sides of this triangle is incentives or pressures. The other two sides are

During the audit engagement, the primary auditor may rely on other individuals, such as specialists, other auditors, and internal auditors (secondary auditors). The primary way to defend the auditor against negligence should such other individuals conduct poor quality work is whether the

Knowledge of the client's industry and external environment can be obtained in different ways. Discuss some of the ways that this knowledge can be obtained.

Which of the following is a factor that relates to "incentives or pressures" to commit fraudulent financial reporting?

The existence of advanced automated systems affects the audit process. Which of the following characteristics is an indicator of the presence of an advanced automated information system?

The existence of advanced automated systems affects the audit process. Which of the following characteristics is an indicator of the presence of an advanced automated information system?

In order to assess if a company is a going concern, the auditor can calculate which of the following ratios during the audit planning and compare with previous years and successful companies in the industry?

The auditor will obtain a copy of the client's articles of incorporation (if applicable) and retain a copy in the permanent file. Important information in the articles of incorporation includes

An important reason for auditors to obtain good knowledge of a client's industry is that

The Demand for Audit and Other Assurance Services

The Public Accounting Profession and Audit Quality

Legal Liability

Professional Judgment and Ethics

Audit Responsibilities and Objectives

Materiality and Risk

Internal Controls and Control Risk

Audit Evidence

Audit Strategy and Audit Program

Audit Sampling Concepts

Audit of the Revenue Cycle

Audit of the Acquisition and Payment Cycle

Audit of the Inventory and Distribution Cycle

Audit of the Human Resources and Payroll Cycle

Audit of the Capital Acquisition and Repayment Cycle

Audit of Cash Balances

Completing the Audit

Audit Reports on Financial Statements

Other Assurance and Nonassurance Services

Filters